Green Financial Intermediation – From Demand to Impact

INTERACT

Das Verbundprojekt „Green Financial Intermediation – From Demand to Impact” (INTERACT) hat zum Ziel, zu untersuchen, über welche Wirkungskanäle der Finanzsektor zur Erreichung der klimapolitischen Ziele beitragen kann. Darauf basierend sollen Politikempfehlungen zur Verbesserung des gesamten Prozesses der Finanzintermediation abgeleitet werden.

Das Verbundprojekt besteht aus zwei Teilprojekten, die durch eine übergeordnete Gesamtkoordination eng verbunden werden sollen.

Gesamtkoordination und -leitung des Verbundprojektes

Die Berücksichtigung der Wechselwirkungen und Interdependenzen zwischen den verschiedenen Analyseebenen (Kapitalangebot, Transmissionsmechanismen, Kapitalnachfrage und Klimaauswirkungen) ist von entscheidender Bedeutung, um abzuleiten, wie Green Finance als Katalysator für die Dekarbonisierung wirken kann. Die Konsolidierung der Projektergebnisse ist daher eine wichtige Grundlage für die Dissemination und die praktische Anwendung der Ergebnisse. So soll auch der Dialog zwischen Forschenden und relevanten Interessengruppen im Bereich Green Finance sowie der breiteren Öffentlichkeit in allen Phasen des Projekts gefördert werden.

Dr. Karolin Kirschenmann

Teilprojekt 1: Anlageverhalten privater Haushalte und Transmissionsmechanismen

Das erste Teilprojekt analysiert das Anlageverhalten privater Haushalte, um zu ermitteln, wie „grüne Präferenzen“ in nachhaltige Investitionen gelenkt werden können. Zudem werden Transmissionsmechanismen auf Kapital- und Kreditmärkten untersucht, die dazu beitragen, dass die Finanzierungsbedingungen eines Investitionsprojektes von dessen Klimafolgen abhängig sind. Mittels spieltheoretischer Modellierung, Experimenten und empirischen Analysen werden Marktmechanismen und Bedingungen hergeleitet, unter denen Investitionen in grüne Projekte ihre optimale Wirkung entfalten können.

Prof. Dr. Tabea Bucher-Koenen

Teilprojekt 2: Finanzintermediation auf Unternehmensebene

Das zweite Teilprojekt nimmt die Finanzintermediation auf Unternehmensebene in den Blick. Dabei soll untersucht werden, ob und wie „grüne“ Regulierung den Zugang von insb. kleinen und mittleren Unternehmen zu Krediten beeinflusst, sich in differenzierten Kreditkonditionen niederschlägt und Anreize für Unternehmen gibt, klimafreundlichere Aktivitäten durchzuführen.

Marie-Theres von Schickfus

Interviews about INTERACT

Publications by INTERACT

INTERACT I Catalysts for change: Can green bonds accelerate Europe’s transition to a green economy?

Catalysts for change: Can green bonds accelerate Europe’s transition to a green economy?

Nearly two decades of green bond issues have ignited various research questions and fields surrounding the topic. It is therefore time to take stock. Green bonds were launched with the goal of greening the financial sector by investing the generated funds into sustainable projects that support the transition to a resilient, climate-neutral economy. But are green bonds living up to their promise? In this policy brief, we provide evidence on the role that green bonds can play in the green transition. Our findings are based on a recent project funded by the German Federal Ministry of Research, Technology and Space (BMFTR). When examining the potential distortionary effects of policy interventions (such as green government bond issues) in the green bond market, we only find small effects on average, even though those are stronger for large and specific interventions. Looking at green bond auction design from a theoretical perspective, it can be seen that strategic bidding behaviour can incentivise investors to shift their portfolios towards green investments in general. When banks issue green bonds, they increase the financing of green firms in the form of sustainability-linked loans. As a result, environmental benefits materialise as recipient firms reduce their emissions. These effects are only evident for firms that are already greener than others, however, so more targeted incentives seem needed to channel financial flows more effectively into sustainable transition projects.

INTERACT I Does the European Union need another Green Bond Standard?

Does the European Union need another Green Bond Standard?

On February 28, 2023, the European Union (EU) reached a political agreement on a future regulation of green bonds, the European Green Bond Standard (EU GBS). Last Friday, the European Parliament officially adopted this new regulation. The regulation aims to improve the effectiveness, transparency, comparability and credibility of the green bond market in the EU. In this policy brief, we evaluate the potential advantages and limits of this new regulation. The EU GBS certainly makes sense from a political point of view. It could become a reliable benchmark for evaluating the “greenness” of a bond that directly aligns with regulatory and political action. However, the EU GBS is unlikely to be widely accepted by market participants. The already existing market-based green bond standards seem to be well established. Apart from that, the EU GBS can be seen as a combination of some of those already existing labels, but with the additional obligation for issuers to provide some legally binding information in their prospectuses. The latter could indeed discourage green bond issuers from using the EU GBS.

INTERACT I Do Retail Investors Care About ESG Ratings?

Do Retail Investors Care About ESG Ratings?

This paper examines the causal impact of ESG ratings and their divergence on retail investors’ sustainable investment decisions. Using a survey with a framed choice experiment conducted with 2,025 German retail investors, we document three key findings: (i) While about two in three investors claim they own sustainable equity funds, merely six percent actively incorporate ESG ratings into their own portfolio decisions; (ii) the sustainable investment is associated with the respondents’ beliefs, motivations, and expectations; (iii) higher average ESG ratings increase investment in sustainable funds, but rating divergence reduces such allocations. We formally show that the results are consistent with an ESG portfolio choice model in which ESG rating divergence acts as noisy signals of sustainability and investors differ in their responsiveness based on rating credibility, sustainability preferences, and riskreturn expectations. We provide further robust evidence that, while ESG rating divergence has a weaker effect on committed ESG investors, it significantly reduces the likelihood of sustainable investments among retail investors with lower exposure to green assets.

INTERACT I Financing the green transition: The role of private capital

Financing the green transition: The role of private capital

The greening of the European economy will require large amounts of capital to flow into green projects. As the public sector alone will not be able to achieve this, European capital markets and the European banking system will play an important role in financing the green transition. In this policy brief, we provide evidence on the drivers and barriers for private and institutional investors to engage in financing the green transition from two recent projects funded by the German Federal Ministry of Education and Research (BMBF) and the ZEW Sponsors’ Association, respectively. For private investors, increasing (sustainable) financial literacy is crucial to increase the capital market participation of EU households in general and sustainable investments in particular. Furthermore, reliable and accessible information on sustainable financial products is important to facilitate retail investors’ decisions to invest in green projects. For institutional investors, engagement and the integration of sustainability as an integral part of investment decisions seem to be the most promising ways to effectively create impact. For securitization to become a more attractive tool for financing the transition, it should be placed on a level regulatory playing field with other financial products with similar risks. And while the new disclosure regulations impose high costs, their impact on sustainability remains unclear. Overall, policymakers should focus on effective climate policies in the real economy and enabling regulatory frameworks for the financial sector.

INTERACT I Taxonomy Talks, Credit Walks: The EU’s Climate Disclosure Framework and Bank Lending

Taxonomy Talks, Credit Walks: The EU’s Climate Disclosure Framework and Bank Lending

We study how mandatory climate-related disclosure affects bank lending using the phased introduction of the EU Taxonomy Regulation. Exploiting the staggered development and implementation of the regulation, we distinguish banks’ responses to anticipated disclosure requirements from their responses to realized firm-level sustainability information. Using syndicated loan data from 2016 to 2025 and a loan-level difference-in-differences design, we show that banks adjust lending to regulated firms with greater Taxonomy-eligible exposure following the 2019 announcement, reallocating credit toward similarly exposed non-regulated firms. Once firms report alignment, higher alignment is associated with larger loan volumes. We further show that banks adjust contractual terms to manage transition risk.

INTERACT I The EU Taxonomy’s (Potential) Effects on the Banking Sector and Bank Lending to Firms

The EU Taxonomy’s (Potential) Effects on the Banking Sector and Bank Lending to Firms

One of the key pillars of the European Green Deal is a renewed sustainable finance strategy to finance sustainable growth and to channel private investments towards projects that support the transition to a climate-neutral economy. The aim of this policy is to make the private sector take into account sustainability-related non-financial factors when making financing and investment decisions. Within this framework, the EU Taxonomy provides a uniform definition and classification system of environmentally sustainable economic activities. In addition, the EU Taxonomy itself provides the basis for further legislation and regulation. Banks as the main financiers of firms in Europe and therefore important players in directing capital flows towards sustainable projects are thus targeted with several requirements based on the Taxonomy. The question then is how banks’ lending to firms is affected by these regulatory changes and whether an impact on the greening of firms’ economic activities can be achieved. The existing literature provides evidence that firms’ environmental, social and governance (ESG) risks, profiles and performance influence their loan conditions, but it is unclear whether better funding conditions lead to reduced carbon emissions or “greener” activities at the firm level.